Question

The owners of a private company wish to dispose of their entire investment in the company....

The owners of a private company wish to dispose of their entire investment in the company. The company has an issues share capital of 1 million € of a 0.50 € nominal value ordinary shares. The owners have made the following valuations of the company’s assets and liabilities.

Million €

Non-current assets, book value

30

Current assets

18

Non-current liabilities

12

Current liabilities

10

The net realisable value of the non-current assets exceeds their book value by 4 million €. The current assets include 2 million € of accounts receivable which are thought to be irrecoverable.

What is the minimum price per share which the owners should accept for the company?

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Answer #1
No of Shares Outstanding of a Company
= Share Capital Issued / Nominal Value Per Share
= €1000000 / €0.50
= 2000000 Shares
Market Value of Company
= Net realisable value of non current assets + Current assets excluding irrecoverable
- Non Current Liabilities - Current Liabilities
= (€30000000+€4000000) + (€18000000-€2000000) - €12000000 - €10000000
= €34000000 + €16000000 - €12000000 - €10000000
= €28000000
So,
Minimum Price Per Share
= Market Value of Company / No of Shares outstanding
= €28000000 / €2000000
= €14
Minimum Price Per Share that owners should be accepted = €14
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